U.S. Stimulus Withdrawal, Corporate Social Responsibility (CSR)

U.S. Stimulus Withdrawal, Corporate Social Responsibility ('CSR')

U.S. Stimulus Withdrawal

An article today titled 'Goldman:  Pullback by Government Set to Drag on Growth' includes a Chart I think you really ought to look at.  As I read it, the Chart essentially shows that virtually all the U.S. 'growth' (read recovery) that has been incessantly talked about in past months in the U.S. Press and by numerous 'commentators' has been fueled by U.S. Federal Government spending, benefits and expiration of taxes added in 2001 - 2003.  If the Goldman economists 'have it right' I think this is 'serious stuff' in the context of where the U.S. GDP may be headed over the next few months for sure, and possibly the next several years.  As I see it, the data in the Graph fundamentally stands for the proposition that the U.S. Economy, like a wayward child supported by his or her parents, is going to falter when that support is withdrawn.  If you are an investor in equities generally and resource equities in particular, please take the time to read this article and focus on the Chart embedded in it - reading time 3 minutes.

A second article today titled 'Why the Recession Ended' says Alan Blinder, a professor at Princeton and Mark Zandi of Moody's Economics argue that without the TARP and Stimulus Packages U.S. GDP would have been 11.5% lower than it is likely to turn out, payroll employment would have been 8.5 million lower, and the U.S. would now be facing outright deflation rather than just being at risk of falling into it.  I think that if there is any validity to Blinder/Zandi's conclusions they are extremely important and significant.  I suggest you also take the time to read the referenced article - reading time 5 minutes.  I also suggest you take a longer time to carefully read the Blinder/Zandi study.  Published only 3 days ago, it is titled 'How the Great Recession Was Brought to an End' - estimated reading time 30 minutes.

Corporate Social Responsibility - A Big Deal For Investors

Corporate Social Responsibility ('CSR') means 'the way in which companies integrate social, environmental and economic concerns into their values in a transparent and accountable manner'.  That is the theoretical descriptor.  As a practical matter what it really means is how each company is perceived by those it has an impact on - and those it has an impact on extend far beyond:

·        investors in the company;

·        the company's Board;

·        the company's Management; and,

·        the company's employees

to include those who live in the community in which each company operates, the local Government that has a say in each company's conduct, the wider Governments and Government agencies each company must seek approval from to conduct its operations, aboriginal people with land and other claims, and environmental and other 'interest groups' who often have a political influence and voice beyond their numbers.

'Corporate Social Responsibility' sounds like a phrase that might have first been phrased by someone with a political bent well left of center.  Having said that, the fact is that companies do have a social responsibility for their governance and actions - and whether they like it or not both those companies that operate in their Home Markets and those that operate abroad are going to face increasing 'social responsibility' tests as time passes.  Further, it is likely that no industry will face greater 'social responsibility issues' than will the extractive resource industries, and no Boards of Directors and Management Groups will face greater 'social responsibility' challenges than will the Boards and Managements of companies that participate in those industries.

To put CSR in even more context, the Canadian Federal Government has a stated 'CSR Strategy' for companies in the Canadian extractive sector that operate all or in part outside (and obviously inside) Canada.  That 'strategy' includes four main pillars for enhancing the ability of those companies to manage the societal and environmental risks they face:

·        support for host country resource governance capacity-building initiatives;

·        endorsement and promotion of widely-recognized international CSR performance guidelines;

·        support for the development of a CSR Centre of Excellence; and,

·        the creation of the Office of the Extractive Sector CSR Counsellor.

The Canadian Institute of Mining and Metallurgy ('CIM'), Canada's oldest and largest (by membership) Mining and Oil & Gas related Association, also is actively spearheading an important CSR initiative.  CIM is a not-for-profit, non-lobby organization whose Head Office is in Montreal, Quebec, has branches throughout Canada, and has close ties with similar resource focused organizations throughout the world.

I strongly believe that going forward company Boards and Management, equity investors, and those that advise equity investors, will need to ever more carefully consider all aspects of CSR and its possible impacts on individual companies (read individual 'mining or other extractive projects' ).

To put CSR in even further perspective, by chance an article yesterday titled 'Mining for Gold Mergers' discusses the author's perception of things to look for when attempting to identify mergers and acquisitions in the mining space. Like (or so I suspect) many commentators, the article's author made no mention about CSR, its importance, and its influence on the value of mining companies generally and on acquisition and merger activity specifically.  I commented on the article as follows:

A caveat to with respect to merger and acquisition activity that is not mentioned in this article is the increasing focus on Corporate Social Responsibility ('CSR'). Briefly, I think escalating focus on CSR will require ever more careful analysis of the political and societal perceptions of the operations (or prospective operations in the case of a mining explorer) of mining companies generally and perceived merger and acquisition candidates in particular - importantly including project 'site-specific' environmental or potential environmental issues. Analyzed on a project by project basis, CSR analysis can make an acquisition or merger target more or less attractive - and trust me, CSR in all its many guises will become an ever more important thing for analysts and investors to focus on as time passes.

To be clear, none of this is directed at either the article content or the companies named in the article. Rather it is a general 'be on the alert' comment aimed at both mining analysts and those who trade or invest in mining (or for that matter 'oil & gas') companies - particularly those who attempt to determine which explorers or producers may be merger or acquisition targets.

24 hours after posting my comment it has received only one 'thumbs up' and no 'thumbs down', when typically I receive many of both on my comments on articles.  This 'nothing' response suggests to me that CSR currently is not reader's 'radar screens' to anything like the degree it ought to be.

It is by now likely evident to you that I see CSR as an every increasing 'Big Deal' for mining and oil and gas company Directors, Managements, analysts, investment advisors, traders and investors.  I will be expanding on CSR in upcoming e-mails.

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Ian R. Campbell

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